During his campaign, President Trump decried the United States’ trade deficit with China and promised to bring manufacturing jobs back to the country. After he took office, he began an aggressive protectionist campaign, imposing tariffs on hundreds of billions in Chinese goods.
He aimed to decrease the US trade deficit, punish China for intellectual property theft and forced technology transfer, and pressure Beijing to reform its economic model. These objectives are laudable. However, they cannot be achieved by a trade war. Moreover, the economic costs of a trade war would be substantial. According to economists Michael Meltzer and Shmuel Shenai, the loss of high wage jobs in US manufacturing, and increased costs for companies attempting to protect their intellectual property, will cost the economy as much as $500 billion a year.
The trade war has lasted since 2018, when Trump imposed tariffs on Chinese goods, and it shows no sign of stopping. On July 7, the administration sent letters to 14 countries, including Japan and South Korea, threatening them with higher import duties if they did not reach a deal by August 1. The administration also threatens Brazil and Greenland (which it wants for its strategic location and natural resources).
As these countries struggle with higher tariffs, their households will suffer. A trade war reduces household consumption, as domestic producers suffer from lower sales to foreign consumers and higher production costs, and consumers face higher prices in the absence of foreign alternatives. In addition, skilled workers in export-competing sectors lose out more than unskilled workers in import-competing industries.